The Financially Confident Retiree

Written by Ray V. Padrón, CPA, CFP®, CIMA® on January 1, 2016

We see it time and time again. Whether it is a couple who have come to our office to discuss preparing for retirement, or retirees who are now less sure of their financial security than they were a few months ago. Everything these people hear from the pundits tells them that in spite of the commendable job they’ve done, there is uncertainty ahead. And as we talk with them about their finances, we can see that uncertainty in both their questions and in their countenance.

The drivers of this uncertainty seem to stem from one question they cannot answer: “Will we continue to have enough in the later phases of our lives if we spend money now to generate life experiences to enjoy at this age?” Put succinctly: “How do we make sure not to outspend our savings, and at the same time, not under-spend our experiences?” The fact that people struggle with this issue is not surprising. Many have spent most of their working lives building a business or contributing to their company’s 401(k) plan. And, they have little to no experience living out of accumulated savings. In large part, the periodic financial storms of the past have not impacted them as viscerally because they were generating substantial income through employment. Now the circumstances are different. In many ways, the recent volatility in the markets has produced a crisis of confidence.

So what can be done to help? How can they regain their confidence? Should they be better accumulators and save more money? Should they cut back on their living expenses, becoming more frugal in their spending? Studies have found that individuals who saved more (at least 8% of income saved annually) were actually less confident about their retirement security and the retirement decisions they made compared to individuals with lower savings rates. This tells us that those who actually understand the gravity of the challenge do a better job addressing the parts they control, even though they do so with less confidence. Maybe ignorance really is bliss. The important lesson here is that the first key to success is accepting reality.

So what is the answer to the “confidence dilemma?” How can these couples find ways to protect their confidence and make wise decisions in their later years? The answer starts simply with these words: Plan for success. At Brightworth, one of our cornerstones is our belief in a comprehensive wealth management plan followed by financial reviews on an ongoing basis. A solid plan provides the key to your continued confidence and knowledge that you will be able to spend for those experiences you have planned for through retirement.

Confidence, much like physical strength, requires effort to maintain. Your wealth management plan is the gymnasium where that confidence is exercised. Having a plan that you “exercise” on a regular basis, ensures that you will make wise decisions. Why? Because at their core, wise decisions have a true acceptance and understanding of reality. So does your wealth management plan.

As individuals who don’t want to spend time worrying about where your monthly cash flow will come from, you have a greater need to understand and plan for economic uncertainty by learning to say to yourselves that “uncertainty is a certainty.” Here again is where exercising your confidence helps. Your plan provides you with the context for not only a better understanding of your wealth and its future purchasing power, but it also takes into account the impact of a wide range of economic uncertainty and volatility. Whether the issue is inflation, taxes, spending, or portfolio returns, your comprehensive wealth management plan and ensuing updates will reset your present course and map out how you are doing both now and prospectively into the future. No one likes the feeling and impact associated with the recent market volatility and the prognosis of downward economic times ahead, but the experienced retiree knows that it is both expected and taken into account as part of their ongoing planning ... and that builds confidence!